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PETITIONER:

HYDERABAD INDUSTRIES LTD. AND ANI

Vs.

RESPONDENT:

UNION OF INDIA AND ORS.

DATE OF JUDGMENT21/07/1995

BENCH:

BHARUCHA S.P. (J)

BENCH:

BHARUCHA S.P. (J)

AHMADI A.M. (CJ)

PARIPOORNAN, K.S.(J)

CITATION:

1995 SCC (5) 338 JT 1995 (5) 594

1995 SCALE (4)516

ACT:

HEADNOTE:

JUDGMENT:

JUDGMENT

BHARUCHA, J.

The appellants (original writ petitioners) import

asbestos fibre and pay Custome duty thereon under entry

25.01.32, which reads:

Mineral substances, not elsewhere specified

.........................................:

(1) xx xx xx

(2) Asbestos raw including fibre 40%

xx xx xx

There is no dispute in regard to the levy of Customs duty.

The dispute is in regard to the levy on the imported

asbestos fibre of additional duty under Section 3(1) of the

Customs Tariff Act, 1975, which is qwaied hereinafter. The

appellant in Civil Appeal No. 1354 of 1980 also mines

asbestos in India and is made liable to pay excise duty

thereon under Tariff item 22F. Which reads thus:

"Item No. Description of goods Rate of Duty

------------------------------------------------------------

22F Mineral Fibres and manufactures Fifteen percent

therefrom in all in relation to ad valorem

the manufacture of which any

process is ordinarily carried

on with the aid of power.

Explanation : "Mineral fibres and yarn, and

manufactures therefrom" shall be deemed to

include :

(i) glass fibre and yarn including glass

tissues and glasswool;

(ii) asbestos fibre and yarn;

(iii) any other mineral fibre or yarn,

whether continuous or otherwise such as

slagwool and rock wool; and

(iv) manufactures containing other than

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asbestos cement products."

This levy is also disputed. By the common judgment under

appeal, the Delhi High Court dismissed the writ petitions.

The constitutionality of the imposition of excise duty

on asbestos fibre is not now disputed.

What asbestos is and how it is recovered is set out in

the judgment under appeal, and it is not faulted on this

account. This is what it says:

Major producers of asbestos

are Canada and U.S.S.R. Asbestos is

defined as general name for the useful

fibrous varieties of a number of rock

forming minerals. The value of asbestos

ensues from the incombustible nature of

the products fabricated from the various

grades of mineral fibres. (Vide Mc. Graw

Hill Encyclopaedie of Science and

Technology. Vol. 1 (1977) page 618).

Most asbestos fibres occur in small

cracks in massive rocks and are

difficult to recover e.g. a large cubic

open pit mine handles approximately 16

tons of ore. 8 tons of waste ore and 23

tons of over-burden to produce a single

ton of asbestos. To mine chrysotile. the

ore is first blasted loose. The larger

asbestos seams i.e. those that are

atleast 9.5 mm wide are picked from the

ore after blasting and adhering rock is

removed with a pick. The cesulting

chunks of ore called crudes. Which may

contain as much as 30% water, are then

dried in preparation for the next stage

- separation into fibres. Fibre

separation is accomplished mainly by a

series of shaking screens, special

separators called cyclones, and

additional crushers or fibrizers. At

each shaking screen the liberated fibres

are sucked off by an airstream and

collected for grading and packaging. The

larger pieces of ore, which are retained

by the screen are recycled for further

crushing. Smaller pieces, which pass

through the screen and are called

throughs, are sent to the next crushing

or fiberizing sequence. The extremely

small pieces that fall through the

screens following the final fiberizer

are discarded. (Vide Encyclopaedia

Americans Vol. 11 (1970) page 427, 428).

Similarly the Encyclopaedia of

Natural Chemical analysis, Vol. 11

gives the processing of asbestos fibre

as follows:-

"Asbestos fibre is recovered by open pit

or underground mining operations. In the

open pit operation, the ore is taken

from the top of the deposit and in

underground method, the ore is removed

from the bottom of the deposit. One

imported method used in underground

mining is known as block carving. In

this method, a large block of ore is

loosened in such a way that it breaks

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down from its own weight. The ore is

extracted through a network of tunnels

and carried to primary crushers which

break up the large rock chunks into

fragments. The crushed ore falls into

bins and then undergoes further crushing

and drying prior to processing at the

mill. The milling operation are

complicated but consist of separating

the fibres from the rock. In the mill

the rock is crushed more finely and

passes ores through vibrating screans

which roughly separate the loose fibre

from the rock. Powerful hoods, which

operate much like vaccum cleaners, lift

the loose fibre leaving the heavier

rock. This operation is repeated until

the separation is complete and only

waste rock remains. The separated fibres

are then cleared and carefully graded

according to length. Grading is done

according to rigid industrial

specifications.

BRUSSELS' NOMENCLATURE defines asbestos as

follows:

"25.23 - ASBESTOB :

Asbestos is a natural mineral

substance produced by the decomposition

of certain rocks. It has a very

characteristic fibrous texture: It is

sometimes, silky in appearance and the

colour varies greatly, being usually

white, but sometimes grey, greenish,

blue or dark brown. Its main property is

its resistance to fire and acida.

The heading applies to crude

asbestos in rock form, to raw, beaten or

washed fibres, whether graded to length

or not, to asbestos in flakes or powder

and also to asbestos waste. The heading

excludes fibre which has been further

processed (carded, dyed etc.) and

finished artioles of asbestos (heading

68.13)".

The process by which the asbestos

fibre is obtained is more or less as

follows:-

The petitioners extract asbestos

rock from the mine which is in the shape

of large boulders. This asbestos rock is

put into jaw crushers and is made into

small size of about 20-40 mm. These

further rocks of 20-40 mm size are still

subject to further reduction in a hammer

mill, the purpose of which is to reduce

the rock to a stage so that the fibre

could be taken away from rock in which

it is embedded. The asbestos fibre is

found on the rocks which contain thin

layer of the fibre of about an inch in

length of a piece of rock about the size

of a cricket ball. The petitioners have

obtained permission from the Collector

of Central Excise. Patna as communicated

by Assistant Collector dated December

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14. 1977 to remove in bond semi finished

goods under Rule 56 (b) from the mining

place at Roro to the factory at

Hyderabad for further processing after

the pieces of rock are brought to

Hyderabad they are crushed to smaller

size with the aid of power and the

resultant is subject to series of

screening surfaces so that the asbestos

fibre which is very much lighter is

removed and seperated from the dust and

the grit. The fibre however, still

contains rock particles and spicules.

The fibre is then pressed through a

Hwrricane Hill where rapidly rotating

rotors pulverise the stones and apicules

without damaging the fibre. It is in

this process that ultimately the

asbestos fibre free of all dust and

stone particles is produced."

In Minerals and Metals Trading Corporation of

India Ltd. vs. Union of India and ors., 1973-1 S.C.R. 997,

this Court was concerned with the exigibility of the mineral

wolfram to excise duty. The relevant portion of the judgment

is self-explanatory.

"The separating of wolfram ore from

the rock to make it usable ore is a

process of selective mining. It is not a

manufacturing process. The important

test is that the chemical structure of

the ore should remain the same. Whether

the ore imported is in powder or granule

form is wholly immaterial, What has to

be seen is what is meant in

international trade and in the market by

wolfram ore containing 60% ore more WO3.

On that there is a preponderation weight

of authority both of experts and books

and of writings on the subject which

show that wolfram ore when detached and

taken out from the rock in which it is

embedded either by crushing the rock and

sorting out pieces of wolfram or by

waening or magnetic separation and other

similar and necessary process it becomes

a concentrate but does not cease to be

ore. Unless the ore is roasted or

treated with any chemical it cannot be

classed as processed."

We are satisfied upon the material placed before us, as

indicated in the judgment under appeal quated above, that

all that the appellants in Civil Appeal 1354 of 1980 do is

to separate the asbestos fibre from the rock in which it is

embedded by manuel and mechanical means. The asbestos fibre

that is so removed from the parent rock is in every respect

the esbestos that was embedded in it. No process of

manufacture can be said to have been employed by the

appellants nor is a new or a distinct commodity realised

therefrom.

In Moti Laminates Pvt. Ltd. vs. Collector of

Gentral Exoise, 1006 (70) E.L.T. 241 (S.C.), this Court

said:

"6. The duty of excise is

leviable under Entry 84 of List 1 of the

Vllth Schedule on goods manufactured, or

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produced. That is why the charge under

Section 3 of the Act is on all,

'Excisable goods','produced or

manufactured'. The expression 'excisable

goods' has been defined by clause (d) of

Section 2 to mean, 'goods' specified in

the Schedule. The scheme in the Schedule

is to divide the goods in two broad

categories - one, for which rates are

mentioned under different entry and

other the, residuary. By this method all

goods are excisable either under the

specific or the residuary entry. The

word 'goods' has not been defined in the

Act. But it has to be understood in the

sense it has been used in Entry 84 of

the Schedule. That is why Section 3

levies duty on all excisable goods

mentioned in the Schedule provided they

are produced and manufactured.

Therefore, where the goods are specified

in the Schedule they are excisable coods

but whether such goods can be subjected

to duty would depend on whether they

were produced or manufactured by the

person on whom duty is proposed to be

levied. The expression 'produced or

manufactured' has further been explained

by this Court to mean that the goods so

produced must satisfy the test of

marketablity. Consequently it is always

open to an assessee to prove that even

though the goods in which he was

carrying on business were exciseble

goods being mentioned in the Schedule

but they could not be subjected to duty

as they were not goods either because

they were not produced or manufactured

by it or if they had been produced or

manufactured they were not marketed or

capable of being marketed."

It also said:

"The tariff schedule by placing the

goods in specific and general category

does not alter the basic character of

leviability. The duty is attracted not

because an article is covered in any of

the items or it falls in residuary

category but it must further have been

produced or manufactured and it is

capable of being brought and sold."

Assuming that Tariff item 22F. When it refers to

"asbestos fibre and yarn", covers asbestos fibre that has

been separated from its parent rock in the manner

aiopamentioned, such asbestos fibre is not the result of a

process of manufacture, it is not a new and commercially

identifiable article and it is, therefore, not liable to

excise duty.

What all the appellants import is, it is not disputed,

asbestos fibre that has been separated from its parent rock

in the manner aforementioned.

The learned Additional Solicitor General submitted that

the asbestos fibre imported by the appellants was exigible

to additional duty regardless of the fact that it was not

the result of manufacture and, therefore, not exigible to

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excise duty. He placed reliance in this behalf upon this

court's judgment in Khandelwal Metal & Engineering Works and

another etc. vs. Union of India and others. (1985) Suppl. 1

SCR 750. There is no doubt that this judgment, delivered by

a bench of three learned Judges, is of great assistance to

the case of the Revenue.

In the case of Khandelwal Metal & Engineering Works the

appellants carried on the business of importing orsss scrap.

They contended that the additional duty was in the nature of

counter-vailing duty, and it could not be levied on brass

scrap because the brass scrap, which consisted of damaged

articles like taps and pipes, was not manuractured in India

or elsewhere. The bench noticed that Beation O (15) of the

Customs Act, 1982, defined "duty" to mean a duty of Customs

leviable under the Act, Chapter V of the Customs Act

contained provisions for the levy of, and exemption from.

Customs duties. By Section 12(1), "except as otherwise

provided in the Act or in any law for the time being in

force". duties of Customs were leviable at such rates as

might be specified under the Customs Tariff Act, 1975, or

under any other law for the time being in force, on goods

imported into or exported from India. Section 2 of the

Customs Tariff Act stated that the rates at which duties of

Customs would be levied under the Customs Act were specified

in the First and Second Schedule of the Tariff Act. Section

3 of the Tariff Act dealt with the levy of additional duty

equal to excise duty.

Sub-section (1) of Section 3 and the Explanation to

that section read thus!

"Levy of additional duty equal

to excise duty. (1) Any article which is

imported into India shall, in addition

be liable to a duty (hereafter in this

section referred to as the additional

duty) equal to the excise duty for the

time being leviable on a like article if

produced or manufactured in India and if

such excise duty on a like article is

leviable at any percentage of its value,

the additional duty to which the

imported article shall be so liable

shall be calculated at that percentage

of the value of the imported article.

Explanation- In this section the

expression "the excise duty for the time

being leviable on a like article if

produced or manufactured in India" means

the excise duty for the time being in

force which would be leviable on a live

article if produced or manufactured in

India or, if a like article is not so

produced or manufactured which would be

leviable on the class or description of

article to which the imported article

belongs, and where such duty is leviable

at different rates, the highest duty."

The first question which the bench was required to

examine related to the true nature of the duty mantioned in

Section 3(1) of the Tariff Act. The bench said that it had

to be appreciated at the threshold that the charging section

was Section 12 of the Customs Act and not Section 3(1) of

the Tariff Act. Section 12 of the Customs Act incorporated

the different ingredients embodied in the concept of a

fiscal imposition. It levied a charge, it indicated the

taxable event, which was the import or export of goods, and

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it indicated the rate of the levy, which was such "as may be

specified under the Customs Tariff Act, 1975." Section 2 of

the Tariff Act laid down that "the rates at which the duties

of Customs shall be levied under the Customs Act are

specified in the First or Second Schedules". The levy

specified in Section 3(1) of the Tariff Act was a

suppiementary levy in enhancement of the levy charged by

Section 12 of the Customs Act and with a different basis

constituting the measure of the impost. In other words. the

scheme embodied in Section 12 was amplified by what was

provided in Section 3(1). The Customs duty charged under

Section 12 was extended by an additional duty confined to

imported articles in the measure set forth in Section 3(1).

Thus, the additional duty which was mentioned in Section

3(1) of the Tariff Act was not in the nature of a

countervailing duty. Counsel for the appellants relied

strongly on the objects and Reasons of Section 3 of the

Tariff Act in support of the contention that the said

section was a charging section and imposed a countervailing

duty. The Statement of Objects and Reasons read:

"Clause 3 provides for the levy of

additional duty on an imported article

to counterbalance the excise duty

leviable on the like article made

indigenously, or on the indigenous raw

materials, components or ingredients

which go into the making of the like

indigenous article. This provision

corresponds to section 2-A of the

existing Act, and is necessary to

safeguard the interests of the

manufacturers in India."

The Statement of Objects and Reasons, the bench said, lent

prima facle support to the contention of the appellants but,

in the absence of any ambiguity in the wording of Section

3(1), the additional duty referred to therein could not be

treated as countervalling duty not could Section 3 be

regarded as a charging section merely because the

Statement said that it "provides for the levy". Having

concluded that Section 3(1) of the Tariff Act was not a

charging section and that the additions duty which it spoke

of was not a countervalling duty, the bench went on to

consider the contention of the appellants that the brass

scrap imported by them was not produced or manufactured in

India because the damaged articles of brass which

constituted brass scrap were not only incapable of being

manufactured but were, in fact not manufactured. According

to learned counsel for the appellants, the basic postulate

underlying the levy of duty under Section 3(1) of the Tariff

Act was that there were indigenous goods belonging to the

class of goods which were imported which were chargeable to

excise duty. The illustrations he gave were the import of

live animals, live trees, burnt up cables, broken glass or

fused bulbs. The argument was that there was and could be no

additional duty on these goods, if imported, because they

could not be and were not manufactured. To put it in one

sentence, the argument was that if indigenous goods similar

to those which were imported did not suffer excise duty for

the reason that they were not manufactured, the charge

leviable under Section 3(1). At the Tariff Act was not

attracted. The bench rejected the argument. In the first

place, it said. Sections 2 and 3(1) of the Tariff Act were

not charging sections; the charging section was Section 12

of the Customs Act. The taxable event was not the

manufacture of goods. Under Section 3(1) of the Tariff Act,

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"the excise duty for the time being leviable on a like

article if produced or manufactured in India" was only the

measure of the duty leviable on the imported article.

Section 3(1) did not require that the imported article

should be such as was capable of being produced or

manufactured in India. The assumption had to be that an

article imported into India could be produced of

manufactured in India and, upon that basis, the duty had to

be determined under Section 3(1). The bench said:

"Any doubt on this point is resolved by

the Explanation to section 3(1) of the

Tariff Act. The Explanation furnishes a

dictionary for the interpretation of

section 3(1) and provides a clue to its

understanding. The Explanation provides

in so many words that the expression

"excise duty for the time being leviable

on a like article if produced of

manufactured in India" means "the excise

duty for the time being in force which

would be leviable on a like article if

produced or manufactured in India

"...........................The

Explanation even goes further and

provides that if a like article is not

so produced or manufactured, then, the

duty leviable means the duty which would

be leviable on the class or description

of articles to which the imported

article belongs. These provisions leave

no doubt that the duty referred to in

Section 3(1) of the Tariff Act does not

bear any nexue which (sic) the nature

and quality of the goods imported into

india."

The bench then considered the matter from a different

point of view and found that the brass scrap imported by the

appellants came into existence as waste or rejected artioles

during the prooess of manufacture and, therefore, it was, in

any event, liable to excise duty and, therefore, to

additional duty under Section 3(1) of the Tariff Act.

We have some difficulty in construing the Explanation

to Section 3(1) of the Tariff Act in the manner adopted in

the case of Khandelwal Metal & Engineering Works. The

difficulty arises when the article which is imported has not

been produced or manufactured. The Explanation says that the

expression "excise duty for the time being leviable on a

like article if produced or manufactured in India" in

Section 3(1) means the excise duty that "would be leviable

on the class or description of article to which the imported

article belongs". Excise duty is leviable on the class or

description of article to which the imported article belongs

if articles of that class or description are exigible to

excise duty, having undergone production or manufacture. If

they have not undergone production or manufacture they are

not exigible to excise duty. Articles of that class or

description of goods when imported are, then, not liable to

additional duty. The assumption underlying the Explanation

to Section 3(1) would appear to be that an imported article

which is the result of production of manufacture can be

produced or manufactured in India; the emphasis in the

assumption is on the words "in India". In other words, if

the imported article is the result of production of

manufacture, it must be assumed that it can be produced or

manufactured in India. In this context the Statement of

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Objects and Reasons is relevant. It says that the levy of

additional duty on an imported article is provided for to

counterbalance the excise duty leviable on the like article

made indigenously.

It may also be reconsidered why, insofar as additional

duty is concerned, Section 3 of the Tariff Act is not the

charging section. It provides for the levy, namely,

additional duty; it provides for the taxable event, which is

the import of goods that have been produced or manufactured;

and it sets out the measure of the duty, which is the excise

duty on the indigenously produced or made equivalant

article. The Statement of Objects and Reasons is meaningful

in the context because it says that Section 3 "provides for

the levy of additional duty...........".

We are, therefore, of the view that the decision in the

case of Khandelwal Metal & Engineering Works requires the

consideration of a larger bench. The papers and proceedings

shall be placed before the Hon'ble the Chief Justice for

appropriate administrative directions.